nep-ppm New Economics Papers
on Project, Program and Portfolio Management
Issue of 2017‒01‒29
three papers chosen by
Arvi Kuura
Tartu Ülikool

  1. Challenges in Infrastructure Financing Through Sukuk Issuance By Abdelkafi, Rami; Bedoui, Houssem Eddine
  2. Carbon offsets out of the woods? The acceptability of domestic vs. international reforestation programmes By Andrea Baranzini; Nicolas Borzykowski; Stefano Carattini
  3. Can Tax Increment Financing Support Transportation Infrastructure Investment? By Murtaza Haider and Liam Donaldson

  1. By: Abdelkafi, Rami (The Islamic Research and Teaching Institute (IRTI)); Bedoui, Houssem Eddine (The Islamic Research and Teaching Institute (IRTI))
    Abstract: With the adoption of the new development agenda, the global economy is facing great challenges to finance the existing infrastructure gap, especially in developing countries. The private sector should play a more active role to complement the public sector efforts to finance infrastructure investments. Sukuk issuance has recently been considered as one of the potential solutions to mobilize financial resources from the private sector and to incentivize the private capital to invest in public infrastructure development. Nevertheless, the existing evidence shows that to date only a few countries have been able to develop their Sukuk markets. Furthermore, the development of the sovereign Sukuk market has been always contingent on the financial situation of the originator, for example, the government. The main purpose of this paper is to show the reasons behind the underdevelopment of Sukuk in financing infrastructure projects. The paper focuses on the main challenges that developing countries may face while issuing Sukuk to develop infrastructure projects. Although different from conventional instruments, most of the Sukuk structured and issued in the current market may have the same impacts on the economy as conventional bonds. Structuring Sukuk as it is theoretically designed would be a very challenging task for developing countries. The existing evidence shows that developing economies should prepare the ground for Sukuk issuance and for the implementation of infrastructure projects to attract private capital. First, being very complex in nature, these infrastructure projects require important efforts to cover all technical aspects characterizing all phases of the implementation. Second, as a form of Public Private Partnership (PPP), Sukuk issuance would go through the same process that a country needs to introduce this project financing mechanism. Finally, Sukuk issuance requires the establishment of a legal and regulatory framework adapted to Islamic Finance principles.
    Keywords: Sukuk; infrastructure financing; SDGs; public debt; PPP
    Date: 2016–11–05
  2. By: Andrea Baranzini; Nicolas Borzykowski; Stefano Carattini
    Abstract: Following the entry into force of the Paris Agreement in November 2016, governments around the world are now asked to turn their nationally determined contributions into concrete climate policies. Economic arguments justify implementing carbon pricing to achieve emission abatement targets in a cost-effective way, including the possibility to offset domestic greenhouse gas emissions in foreign countries. However, abating emissions abroad instead of domestically may face important political and popular resistance. We run a lab experiment with more than 300 participants by asking them to choose between a domestic and an international reforestation project. We test the effect of three informational treatments on the allocation of participants’ endowment between the domestic and the international project. The treatments consist in: (1) making more salient the cost-effectiveness gains associated with offsetting carbon abroad (2) providing guarantees on the reliability of reforestation programmes (3) stressing local ancillary benefits associated with domestic offset projects. We find that stressing the cost-effectiveness of the reforestation programme abroad is the best way to increase its support, the economic argument in favour of offsetting abroad being largely overlooked by participants. We relate this finding to the recent literature on the drivers of public support for climate policies, generally pointing to a gap between people’s preferences and economists’ prescriptions.
    Date: 2016–12
  3. By: Murtaza Haider and Liam Donaldson (Ryerson University)
    Abstract: This report reviews alternative sources of revenue to support new infrastructure and other development projects for which municipal funds are not readily available. We review two such instruments: Tax Increment Financing (TIF) and Land Value Capture (LVC). We found more frequent use of TIF than LVC. TIF has largely been used to fund small-scale projects, often not exceeding one or two hundred million dollars in capital costs. We could find only two TIF implementations that aimed to generate over a billion dollars in TIF revenue, and those projects fell short of meeting the revenue targets. The evidence for TIF efficacy is mixed and depends, to some extent, on the type of methods used in the analysis. Some studies found the TIF districts reported higher rates of development and greater real estate price appreciation than comparable non-TIF districts. Other studies reached different conclusions. Three key elements were repeatedly found to contribute to TIF success. (1) Mixed land use developments often met their intended TIF objectives. (2) The timing of TIF implementation mattered; TIFs initiated during recessions met with limited success. (3) Smaller TIFs were more successful in meeting revenue targets than larger ones. We simulate a 30-year TIF implementation along the Sheppard East corridor in Toronto, the route for the Sheppard subway line that started operations in 2002, and offer insights for local and higher tiers of government interested in implementing TIF. Our analysis of the Sheppard East corridor found that the net present value of the simulated TIF revenue covered only a small portion of the capital costs of extending the subway line.
    Keywords: tax increment financing, land value capture, value capture, infrastructure
    JEL: H27 H76 R42
    Date: 2016–04

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